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Pro Forma Documents for Business Planning

Learn how to create essential financial documents like revenue models, cash flow statements, and balance sheets for effective business planning and startup success. Understand the importance of each document and the order of construction. Utilize resources like business plan software and templates for accurate financial planning.

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Pro Forma Documents for Business Planning

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  1. Creating Pro Forma Documents William L. Dougan Irvin L. Young Professor of Entrepreneurship Professor of Management UW-Whitewater

  2. Six pieces • Revenue Model • Profit and Loss (P&L) • Cash Flow • Balance Sheet • Startup Capital • Notes

  3. Order of Importance • Cash Flow • Revenue Model • Notes • Startup Capital • Profit and Loss (P&L) • Balance Sheet

  4. Order of Construction • Revenue Model • Startup Capital • Cash Flow • Profit and Loss (P&L) • Balance Sheet • Notes

  5. Business Plan Software • Placed in a spreadsheet or a Business Plan model • Business Plan Pro • Business Mentor • PitchThenPlan • http://www.pitchthenplan.com/homepage.htm • Kauffman Template • http://www.bizstartsmilwaukee.com/BizFiles/TemplatesForms/FastTrac_MyFinancialPlanV6.xls

  6. Revenue Model • Your story about how you will sell your products/services • Based on monthly quantities • Depends on Units or Dollars or both • Boat Manufacturer Units • Retail store  Units are a problem • Multiple Products  Add effects of each product • Additive Linear Model

  7. Additive Linear Model

  8. Revenue Model Factors • Discrete, linear decomposition of a multiple, interacting components • Separate effects of multiple products/services • Startup delay • Production/Sales Ramp-up • Diffusion • Learning • Seasonality

  9. Sales on Account • Not all Sales are cash sales • Large Durable Goods like boats and Heating Systems • Most Corporate Sales are on Account • SO…….. we need a model for how Sales are Made and Paid • Total Sales – Cash Sales (as %) = Sales on Account = Accounts Receivable for first month • Accounts Receivable for first month - % paid first month = Accounts Receivable for second month • Accounts Receivable for second month - % paid in second month = Accounts Receivable for Third month (OR Bad Debt Expense)

  10. Startup Costs • List and numerical equivalent of “stuff” you need to start business • Land/building • Equipment • Operational • Office • Vehicle • Furniture • Professional Fees • Accountant • Lawyer • Consultants • Raw Materials/Supplies • Insurance • Liability • Building • Bonding • Life/Key person • Health • Membership Fees • Advertising/promotions Reserve for Wages/Salaries • Banking • Line of Credit • Account Initiation • Loan Initiation

  11. Cash Flow • Checkbook/Cigar box model • Sources/Dispersements and Balance of Cash by Month • Documents Inflows and Outflows • Big rule CASH BALANCE CAN’T BE NEGATIVE

  12. Cash Items SOURCES: • Cash Sales • (Different than Sales on account) • Collections from AR • Loan Proceeds • Equity contributions • Cash • Capital Goods • Interest • Grants • Prizes • Paid–in Taxes

  13. Cash Items DISPERSEMENTS • OPERATING EXPENSES • Cost of Materials • Wages • Salaries • Income Tax • FICA • Benefits • Sales Taxes • Insurance • Utilities • Advertising • Bank Charges • Dues and Subscriptions • Licenses and fees • Marketing/Promotions • Meals and Entertainment • Office Expenses • Professional Fees • Property Taxes • Rent • Maintenance • Shipping/Delivery • Utilities • Telephone • Training • Travel • Vehicle • CAPITAL COSTS • Capital Purchases • Estimated Tax Payments • Reduction of Principal • Interest Payments • Owners Draw

  14. Opening Cash Balance Month 1 Opening Cash Balance Month 2 • + Cash In from Sources • - Cash Out for Dispersements • = Ending Cash Balance • Which Becomes (for next month) • + Cash In from Sources • - Cash Out for Dispersements • = Ending Cash Balance • Which Becomes (for next month General Form Cash Flow

  15. Profit and Loss • Uses much of the same information as Cash Flow • Major exceptions • Depreciation • Inventory • Receivables • Payables

  16. Profit and Loss Net Sales - COGS Gross Profit - Operating Expenses (See List from Cash Flow) Operating Profit (EBITDA) -Depreciation - Debt Amortization EBIT - Interest EBT - Income Taxes + Interest Income + Royalties • NET INCOME

  17. Balance Sheet • Metaphor of Balance A L + E

  18. Balance Sheet A L + E

  19. Balance Sheet Issues • Balance Sheet is Snapshot, Cash Flow and Income Statement are Time Exposure • Assets – Liabilities = Equity (plug Figure) • CAN’T HAVE NEGATIVE EQUITY • Can have negative retained earnings, but need paid-in capital to balance it • If Equity is Negative, you need more capital or lowered liabilities • CAN’T ADD ASSET BALANCES FROM MONTH TO MONTH

  20. Notes • These provide the justification for values on the other sheets • Act as a source of information about the assumptions used in creation of the other documents • Don’t have to be elaborate, just have to show a short justification for why each number is the way it is

  21. Resources • Real Estate Cost  • www.wisconsinhomes.com • http://www2.bizjournals.com/bizspace/milwaukee/ • Salaries  www.salary.com • Utilities  call utility companies • Mortgage Calculator  All over internet • Insurance  call agent • Industry  RMA Statement Studies + Value Line + Associations Unlimited (for Industry info)+ Dunn and Bradstreet • General  http://library.uww.edu/

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